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macro Flashcards

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1
Q

What is macroeconomics?

A

The branch of economics that studies aggregate economic variables like GDP, inflation, and unemployment.

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2
Q

How is macroeconomics different from microeconomics?

A

Macroeconomics studies the economy as a whole, while microeconomics focuses on individual consumers and firms.

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3
Q

Name two key macroeconomic variables.

A

National income and inflation.

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4
Q

What is the circular flow of income?

A

The continuous movement of income and expenditure between households and firms.

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5
Q

What are the two main sectors in a simple economy?

A

Households and firms.

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6
Q

What is the difference between real and nominal variables?

A

Real variables are adjusted for inflation, while nominal variables are not.

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7
Q

What are the four major sectors in a macroeconomic model?

A

Household, firm, government, and external (foreign sector).

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8
Q

What is an open economy?

A

An economy that engages in international trade.

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9
Q

Define equilibrium in macroeconomics.

A

A state where aggregate demand equals aggregate supply.

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10
Q

What is the role of government in macroeconomics?

A

Regulating economic activities through fiscal and monetary policies.

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11
Q

What are factor payments?

A

Income received by factors of production (wages, rent, interest, and profit).

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12
Q

What is GDP?

A

The total value of all final goods and services produced within a country in a year.

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13
Q

What is the importance of macroeconomic policies?

A

They help in economic growth, stability, and reducing unemployment.

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14
Q

What is monetary policy?

A

Policy used by the central bank to control money supply and interest rates.

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15
Q

What is fiscal policy?

A

Government policy related to taxation and public expenditure.

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16
Q

What is national income?

A

The total value of all final goods and services produced within a country in a year.

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17
Q

Name the three methods of measuring national income.

A

Product method, income method, and expenditure method.

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18
Q

What is GDP at market price?

A

The total value of all final goods and services produced within a country, including indirect taxes and excluding subsidies.

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19
Q

What is GDP at factor cost?

A

GDP calculated by adding all factor incomes (wages, rent, interest, and profit).

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20
Q

What is the difference between GNP and GDP?

A

GNP includes income earned by residents from abroad, while GDP includes only domestic production.

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21
Q

What is Net National Product (NNP)?

A

GNP minus depreciation (consumption of fixed capital).

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22
Q

What is Personal Income (PI)?

A

The income actually received by households before paying taxes.

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23
Q

What is Disposable Personal Income (DPI)?

A

Personal income minus direct taxes.

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24
Q

Define Real GDP.

A

GDP adjusted for inflation.

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25
What is the importance of national income accounting?
It helps in measuring economic performance and policy-making.
26
What is transfer income?
Income received without any productive activity, such as pensions and scholarships.
27
What is the difference between nominal GDP and real GDP?
Nominal GDP is measured at current prices, while real GDP is measured at constant prices.
28
What is the formula for GDP by the expenditure method?
GDP = C + I + G + (X - M) (Consumption + Investment + Government Spending + Net Exports).
29
What is the GDP deflator?
A measure of inflation used to convert nominal GDP into real GDP.
30
What is the limitation of GDP as a measure of welfare?
It does not consider income distribution and non-market activities.
31
What is money?
Anything that is widely accepted as a medium of exchange.
32
Name the four functions of money.
Medium of exchange, store of value, unit of account, and standard of deferred payment.
33
What is the difference between narrow money (M1) and broad money (M3)?
M1 includes currency and demand deposits, while M3 includes time deposits.
34
What is high-powered money?
The total currency issued by the central bank plus reserves of commercial banks.
35
What is the role of commercial banks?
Accepting deposits, giving loans, and creating credit.
36
What is credit creation?
The process by which banks lend money multiple times using the same reserves.
37
What is the cash reserve ratio (CRR)?
The percentage of total deposits that banks must keep as reserves with the central bank.
38
What is the statutory liquidity ratio (SLR)?
The percentage of net demand and time liabilities that banks must keep in liquid assets.
39
What is the difference between central and commercial banks?
The central bank regulates money supply, while commercial banks provide banking services.
40
What is the primary function of the Reserve Bank of India (RBI)?
Controlling inflation and regulating the banking system.
41
What is repo rate?
The rate at which RBI lends money to commercial banks.
42
What is reverse repo rate?
The rate at which RBI borrows money from commercial banks.
43
What is monetary policy?
The policy used by the central bank to control money supply and credit.
44
What is inflation targeting?
A monetary policy framework where the central bank aims to maintain inflation within a specific range.
45
What is the function of the money market?
Short-term lending and borrowing of funds.
46
What is aggregate demand (AD)?
The total demand for final goods and services in an economy.
47
What are the components of aggregate demand?
Consumption (C), Investment (I), Government spending (G), and Net exports (X - M).
48
What is aggregate supply (AS)?
The total output of goods and services produced in an economy.
49
What is the equilibrium level of income?
The level at which aggregate demand equals aggregate supply.
50
What is the multiplier effect?
The process by which an increase in investment leads to a larger increase in national income.
51
What is the formula for the multiplier?
Multiplier = 1 / (1 - MPC).
52
What is the marginal propensity to consume (MPC)?
The fraction of additional income spent on consumption.
53
What is the marginal propensity to save (MPS)?
The fraction of additional income saved.
54
What is the relationship between MPC and MPS?
MPC + MPS = 1.
55
What happens when aggregate demand is greater than aggregate supply?
Inflationary gap occurs.
56
What happens when aggregate demand is less than aggregate supply?
Deflationary gap occurs.
57
What is full employment equilibrium?
When all available resources are fully utilized.
58
What is Keynesian economics?
A theory stating that government intervention is necessary to maintain economic stability.
59
What is involuntary unemployment?
When people are willing to work at current wages but cannot find jobs.
60
What role does fiscal policy play in employment generation?
Government increases spending and reduces taxes to boost demand.
61
What is a government budget?
A statement of expected revenue and expenditure of the government for a financial year.
62
What are the components of a government budget?
Revenue budget and capital budget.
63
What is the revenue budget?
The section of the budget that includes government income and revenue expenditure.
64
Name two sources of revenue receipts.
Tax revenue and non-tax revenue.
65
What are capital receipts?
Receipts that create liabilities or reduce assets, such as borrowings and disinvestment.
66
What is fiscal deficit?
The excess of total expenditure over total revenue excluding borrowings.
67
What is the formula for fiscal deficit?
Fiscal Deficit = Total Expenditure - Total Revenue (excluding borrowings).
68
What is primary deficit?
Fiscal deficit minus interest payments.
69
What is revenue deficit?
The shortfall of revenue receipts compared to revenue expenditure.
70
How does the government finance a fiscal deficit?
Through borrowing from the public, RBI, or foreign sources.
71
What is the impact of high fiscal deficit?
Leads to inflation, higher debt, and economic instability.
72
What are the objectives of a government budget?
Economic stability, income redistribution, and public welfare.
73
What is deficit financing?
When the government funds expenditure by borrowing or printing money.
74
What is the difference between direct and indirect taxes?
Direct taxes are paid directly by individuals (e.g., income tax), while indirect taxes are included in the price of goods (e.g., GST).
75
What is a balanced budget?
When government revenue equals government expenditure.
76
What is the Balance of Payments (BOP)?
A record of all economic transactions between a country and the rest of the world.
77
What are the two main components of BOP?
Current account and capital account.
78
What is included in the current account of BOP?
Trade in goods and services, income from abroad, and transfers.
79
What is included in the capital account of BOP?
Foreign investment, external borrowings, and reserve changes.
80
What is a trade surplus?
When a country's exports exceed its imports.
81
What is a trade deficit?
When a country's imports exceed its exports.
82
What is foreign direct investment (FDI)?
Investment by a foreign entity in a country’s businesses or assets.
83
What is foreign portfolio investment (FPI)?
Investment in financial assets like stocks and bonds by foreigners.
84
What is exchange rate?
The price of one currency in terms of another.
85
What are the types of exchange rate systems?
Fixed exchange rate, floating exchange rate, and managed float.
86
What is depreciation of currency?
A decrease in the value of a currency compared to another currency.
87
What is appreciation of currency?
An increase in the value of a currency compared to another currency.
88
What is a BoP deficit?
When total payments to foreign countries exceed total receipts from them.
89
How does the central bank maintain exchange rate stability?
By buying or selling foreign currency reserves.
90
What is the relationship between BoP and forex reserves?
A BoP surplus increases forex reserves, while a deficit depletes them.

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